MSTA Push for Pensions – Frequently Asked Questions
Q1. What does the pension enhancement legislation do?
A. The legislation passed unanimously by the General Assembly increases the current multiplier in the benefit formula from 1.4% to 1.8% of salary for Pension System participants. This increase is applied retroactively to years of service from July 1, 1998 forward. The bill also increases the employee contribution from its current rate of 2% of salary to 5% of salary. This increase will be phased in at a rate of 1 additional percent per year for the next three years.
| The new legislation: | |||
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1.8% multiplier | |
Retroactive to 1998 |
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5% member contribution phased in over 3 years for everyone. | |
Bifurcated* are included; local governments will have one year to adopt the improvements. |
| *Bifurcated refers to a small group of members who have service credit in both the Retirement System and the Pension System. They left their contributions in the Retirement System when they began earning Pension System benefits. | |||
Q2. How much more money will this put into my pocket when I retire?
A. The additional amount of retirement income you will receive depends on your date of hire, years of service, and last three years of salary. Members who began their employment in Maryland 1998 or later who retire with 30 years of service will see their annual pension jump from 42% of salary (1.4% x 30) to 54% of salary (1.8% x 30). Other participants who began their service prior to 1998 should calculate their benefit from the pre-1998 years using the earlier multiplier of 1.2%.
Q3. When will this enhancement take effect?
A. The improved benefit will take effect on July 1, 2006, and will apply to all persons who are active members of the state employees’ and teachers’ pension systems on or after June 30, 2006.
An eligible member active as of June 30th may retire July 1, 2006 and receive the enhanced retroactive benefit multiplier that becomes effective July 1, 2006. Those retiring July 1, 2006 will be retired the required 12 months as of July 1, 2007 and eligible for the COLA.
MSTA strongly encourages members to consult with the retirement counselors at the state retirement agency to ensure that all eligibility requirements have been met prior to making decisions on retirement.
Q4. Will persons already retired receive any benefit from this legislation?
A. No. The legislation passed will affect only those persons currently employed at the time the bill goes into effect.
Q5. Will persons in the “old” Retirement System receive any benefit from this legislation?
A. No. MSTA’s pension proposal would have given all current employees, regardless of which system they were in, a 60% retirement benefit. This proposal was estimated to cost the state more than $500 million in the first year. Because Governor Ehrlich did not include any funding in his budget for pension improvement, the legislature was constrained significantly in what it could offer and was forced to find whatever funding it could primarily by making cuts in other areas of the budget.
Q6. What about those employees who are “bifurcated” between the Retirement System and Pension System?
A. Members who have service credit bifurcated between the two systems are covered, as long as they switched over to the Pension System prior to April 1, 1998.
Q7. Are those support personnel employed in participating government units included in the legislation?
A. Because the state does not pay the pension costs for those in the state employees’ pension system who work in a participating government unit, these employees are included in the enhanced benefit plan, provided their agency elects to participate. The local participating agency has one year to accept the enhanced benefit, although it will be responsible for paying for the increased benefit for its employees beginning July 1, 2006.
Employees in the unit will have the option to begin making the necessary contributions towards their benefit before the agency elects to participate. The state retirement agency is currently developing implementation regulations for how to make these contributions.
Q8. Why wasn’t MSTA able to win a 60% benefit with full retroactivity?
A. MSTA and its members pushed hard for the 60% benefit for all current employees. Given the fact that Governor Ehrlich failed to provide additional money for pensions in his budget, and that many private companies and some public entities are cutting back or eliminating their defined-benefit pension plans, this improvement was a major victory for the Association. It will cost the State of Maryland $120 million this coming year alone, and $1.67 billion over 25 years.
Q9. How can I get more information about how this enhancement will affect me?
A. The state retirement agency (SRA) has until July 1st to develop implementation regulations. Once these regulations have been implemented, members can call the agency at 800/492-5909 to ask retirement questions regarding their specific circumstances. In addition, the agency will be conducting regional counseling sessions regarding the changes to the pension system made this legislative session. For more information on these counseling sessions, visit www.mstanea.org or the state retirement agency’s website at www.sra.state.md.us.
